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We study the financial engineering aspects of operational flexibility of energy assets. The current practice relies on a representation that uses strips of European spark‐spread options, ignoring the operational constraints. Instead, we propose a new approach based on a stochastic impulse...
It is well known that stochastic volatility is an essential feature of commodity spot prices. By using methods of singular perturbation theory, we obtain approximate but explicit closed‐form pricing equations for forward contracts and options on single‐ and two‐name forward prices. The expansion...
We investigate the pricing of swing options in a model where the logarithm of the spot price is the sum of a deterministic seasonal trend and an Ornstein–Uhlenbeck process driven by a jump diffusion. First we calibrate the model to Nord Pool electricity market data. Second, the existence of an...
The paper considers a single utility company's long‐ and medium‐term hydropower planning. The uncertainties are from the electricity forward curve and a random inflow. A simple and intuitive parameterization is given for the optimal production strategy. The accuracy of the parameterization is...
Of the several models introduced for the modelling of electricity prices, the one proposed by Geman and Roncoroni, that we will refer to as the ‘threshold model’, has exhibited significant success in both its statistical properties and ability to accurately replicate trajectories of electricity...
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